Supporters and critics of the US' biofuels policy spent Tuesday trying tosort out just what a proposed agreement between an East Coast refiner andthe US Environmental Protection Agency concerning the former's obligationsunder federal blending mandates means for the future of the renewable fuelscredits market.

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The proposed agreement would allow Philadelphia Energy Solutions to useits existing stockpile of Renewable Identification Number credits to satisfyits entire obligation under the Renewable Fuel Standard. The agreement, ifapproved, would save the refiner hundreds of millions of dollars.

US Senator Chuck Grassley, Republican-Iowa, and a top supporter of thenation's biofuels industry, questioned whether the blending mandate and otherrefiners were getting shorted in the agreement.

"How are the RIN obligations being treated compared to the otherobligations of PES?" he said. "Does this set an unfair precedent for otherrefiners that continue to act in good faith to comply with the law?"

Prices for Renewable Identification Numbers dropped to the lowest levelin nearly a year Tuesday, a day after the proposed agreement was published.S&P Global Platts assessed D6 ethanol RINs for 2018 compliance at 38.5cents/RIN Tuesday, the lowest level for a current-year ethanol RIN sincePlatts assessed them at the same level on March 17, 2017. Platts assessed 2018D6 RINs as 40 cents on Monday.

However, market participants did not expect too much fallout in the nearterm from the proposed settlement.

"It's really no impact on markets other than if you try and read into itthat EPA is really going out of its way to help refiners," said one sourcefamiliar with RINs markets.

"But a one-off $250 million adjustment to the 'RIN bank' by not makingPES buy them doesn't really change much when you are talking about 15 billionin annual [RINs] demand requirements," the source said.

The source added that even if it is unlikely that many refiners wouldbegin declaring bankruptcy, the proposed settlement could encourage somestronger negotiating.

"Well, you will get threats," the source said.

Among the worries for biofuels supporters are whether the agreement wouldset a precedent for refiners and fossil fuel importers to avoid blendingrequirements.

A consultant focused on the US transportation fuel industry agreed thatcould be the case.

"You will see a lot more people asking for that," Michael Leister ofStillwater Associates told the American Fuel & Petrochemical Manufacturersannual conference in New Orleans. "My guess is that the current administrationreally doesn't want see a large refinery with a lot of employees go out ofbusiness in their first term."

Leister said he expects the administration will be listening to otherappeals and trying to figure out how real those claims are and see what theyare going to do with them.

PES filed for bankruptcy in January, citing RIN costs as a major cause.On Tuesday, PES CEO Greg Gatta said the agreement "alleviates a portion of thecompany's current RINs burden" and puts it on "a stable path towards emergenceand future success."

"If it were not for the settlement, we would face a real prospect ofclosure, laying off 1,100 skilled workers and damaging the energy supply andsecurity of the Northeast United States," he said in a statement. Renewable fuel supporters roundly criticized the decision late Monday.Bob Dinneen, CEO of the Renewable Fuels Association, the US ethanol industry'strade group, said the proposed settlement rewarded "bombast behavior and itsets an extraordinarily bad precedent."

The EPA issues RINs to track renewable fuel usage throughout the supplychain. Refiners and importers -- called obligated parties -- use them to showthe EPA that they have fulfilled their mandated government use of renewablefuels. If the obligated party has not used enough physical product, it can buyRINs to satisfy the quota.

The Department of Justice will publish a notice of the proposedsettlement in the Federal Register and solicit public comment for 10 days. After the comment period closes, the government will "evaluate anycomments received, determine whether any comments disclose facts orconsiderations that indicate that the proposed settlement is inappropriate,inadequate or improper, and advise the court whether the United Statesrequests that the settlement agreement be entered," Acting Assistant AttorneyGeneral Jeffrey Wood said in the Monday court filing.